One thing was missing from the highly charged celebrations that erupted in Tripoli's Martyrs Square at the weekend to mark the anniversary of last year's revolution.

There were fireworks, marching bands and bouncy castles for the children, a hooting phalanx of tugboats on the seafront and thousands of flickering Chinese lanterns sent into the night sky. But there was no sign of the government. The balcony on the Red Castle overlooking the square was empty, with the leadership of the National Transitional Council perhaps sensing that an appearance would see the cheers turn to jeers.

The reality is that, a year after revolution first swept the country, Libya's government, by turns secretive and inept, is seen by ordinary people less as the solution than the problem.

"This celebration was about the people, not the government," said Dr Hana El-Gallal, a legal specialist working with civil rights groups in Benghazi. "The people are doing a better job than the government."

Certainly the crisis-bound NTC must envy the ability of ordinary people to contrive celebrations in which militias kept the peace and not a shot was fired, not by order but by what amounts to common consent.

The decision of the NTC to hold its meetings in private and rule by decree has left diplomats dismayed, and the country is fragmenting under its feet.Misrata, Libya's third city, will tomorrow hold its own elections, unsanctioned by the NTC, a final step towards what is independence in all but name. Its militias control a 300-mile-long corridor stretching across central Libya, policing it according to the city's own leadership, rather than that of the NTC.

To the east, tribal leaders are meeting to consider a similar step, dismayed, as are the Misratans, by rumours that the NTC may delay June's promised national elections. Nor are the government's critics impressed by the declaration by NTC chairman Mustafa Abdul Jalil last week that it will form a political party, which seems an aberration of its promise to withdraw from politics once democracy is established.

And then there are the militias: Libya has more than 500 armed groups, each following their own orders. The wonder is not how bad the violence and armed clashes are – the latest being intertribal violence in the southern town of Kufra that has left more than 20 dead – but how tranquil the country is.

Last week Amnesty International, which is making the running on recording human rights abuses in postwar Libya, reported on the continued use of torture and illegal detention. Amnesty highlighted the 12 deaths in custody that have occurred in militia jails since last September. A cause for concern, certainly, but also the kind of figure that would be considered a wild success were it Afghanistan or Iraq

The problem is not that Libya's militias are out of control, but rather that there is no mechanism for disciplining the minority who commit human rights violations.

"You think this is bad?" said Ahmed, a young militiaman from Tripoli's eastern suburb of Souk al-Juma, regarding an incident last month when two militias battled for custody of a beach house. "Think if you give a gun to every young guy in London. What do you think London would look like the next night?"

Yet this lack of central control invites disaster, because the lack of security across Libya means nothing else gets done, and because the discipline of militias will start to unravel. "This kind of thing is very bad for security, for business, for everything in Libya," said Amnesty International's Donatella Rovera.

A cabinet of technocrats was announced by the NTC last November, but it is starved of authority. Last month prime minister Abdurrahim El-Keib, regarded as a capable official, met Misratan leaders to complain that he has no power. All strategic decisions are the province of the NTC, whose internal squabbles mean nothing gets done.

Instead of tackling problems, the NTC lets them pile up, like water behind a dam. The law for June's election has been published, but there is no justice system to enforce it. Libya now exports more than a million barrels of oil a day, but officials of the internationally mandated Transitional Finance Mechanism complained that even they were not allowed to view the accounts showing where oil revenues are going.

Meanwhile, the government is on a collision course with the international criminal court over its decision to try Saif al-Islam Gaddafi, son of the late dictator, on home soil and under laws not yet published, rather than hand him over to The Hague.

A court system has still to take shape, and the NTC left diplomats scratching their heads last week when it announced that a law on transitional justice had been passed, in secret, two months ago. "They [the NTC] are becoming defensive, they don't understand that their power comes from the people," said El-Gallal.

Meanwhile, wages go unpaid, reconstruction is nonexistent, power cuts are common and much of the country is running out of money. Skirmishes, such as the battle between militias and the town of Beni Walid over its refusal to hand over war crimes suspects, simmer unchecked. And on Friday President Barack Obama's spokesman, Jim Carney, joined the chorus of critics, calling for the NTC to make its decisions "openly and transparently".

Nervousness among western diplomats is well placed, for while the Arab Spring revolts in Bahrain, Egypt, Syria and Tunisia are home-grown, Nato was the midwife in Libya's revolution.

Western recognition was the reason that the NTC, led by figures from the eastern town of Benghazi, are Libya's government, and alliance bombs were the reason it won the war. Should Libya lurch back into dictatorship, the blowback will be felt abroad, not least in London and Paris.

And many Libyans now have the hardware to make their feelings felt. As one militiaman from Benghazi put it, he will give the new government a chance, but "if it is no good, well, we know how to do revolution".